Output in Britain’s construction industry fell at its fastest pace since the financial crisis in June, and things are only going to get worse for the already battered industry following the UK’s vote to leave the European Union, according to the latest PMI survey from Markit and CIPS.
Activity in the construction sector shrunk to just 46.0, down massively from 51.2 in May, and into contraction for the first time in more than three years. Economists surveyed prior to the release had expected output to fall to 50.7.
The purchasing managers index (PMI) figures from Markit are given as a number between 0 and 100
Anything above 50 signals growth, while anything below means a contraction in activity — so the lower the number, the worse the outcome.
While the numbers for June are worrying, what makes them even scarier is the fact that roughly 80% of responses to the survey were received before the EU referendum, meaning that activity was slowing even before the UK’s vote to leave the EU.
With activity across the UK economy expected to slow thanks to the uncertainty surrounding how and when Brexit will occur, the slowing construction sector is particularly worrying, with Tim Moore, a senior economist at Markit saying that the reading is “a clear warning flag for the wider post Brexit economic outlook.”
Here is Markit’s chart, showing just how awful the slowdown looks in the context of the past few years:
“The vast majority of June’s survey responses were received ahead of the EU referendum, so the worry is that the ensuing political turmoil will hit construction spending decisions for some time to come,” Moore noted.
Speaking about the reading, David Noble from CIPS said:
“Though the majority of responses, around 80% were received before the Brexit result, the continuing ambiguity and indecision has flung the sector into unknown territory. Firms will likely look towards any remedies the Bank of England and the UK Government can offer if the situation worsens post Brexit. The only glimmer of light through the brickwork is the rate of decline was not as sharp as that experienced during the last recession. But, with business confidence at a three-year low, and purchasing activity at its lowest level for six and a half years, this is likely to offer little comfort.”